Hong Kong, October 11, 2019 -- Moody's Investors Service has assigned an A3 rating to the perpetual
subordinated guaranteed capital securities to be issued by CLP Power HK
Finance Ltd., and irrevocably and unconditionally guaranteed
on a subordinated basis by CLP Power Hong Kong Limited (CLPP, A1
stable).
The rating outlook is stable.
The proceeds of the proposed hybrid instruments will be used to redeem
the existing USD750 million perpetual subordinated guaranteed capital
securities.
RATINGS RATIONALE
"The A3 rating assigned to the proposed hybrid instrument is two
notches lower than CLPP's issuer rating, reflecting the cumulative
and deeply subordinated nature of the planned securities,"
says Ivy Poon, a Moody's Vice President and Senior Analyst.
"The proposed issuance will have a manageable impact on CLPP's
financial profile, because the proceeds will be used by the company
to refinance existing perpetual securities," adds Poon.
"This situation will help avoid a further increase in CLPP's
leverage, given its reducing financial headroom after the reduction
in permitted rate of return in late 2018."
Moody's expects that -- after the issuance of the proposed
perpetual securities -- CLPP's adjusted funds from operations
(FFO)/ debt will register 23%-26% and adjusted debt/capitalization
45%-47% during 2019-21, weakening from
31% and 42% respectively in 2018.
Moody's considers these securities as hybrid instruments, with debt
and equity components. A 50% equity treatment will be applied
to the proposed hybrid instrument for both CLPP and its parent,
CLP Holdings Limited (CLPH, A2 stable).
CLPP's A1 issuer rating continues to reflect its (1) high predictability
of regulated cash flow, (2) low business risks, supported
by a well-established regulatory regime, (3) close relationship
with CLPH, (4) lower regulatory rate of return, which reduces
its financial capacity, and (5) moderate carbon transition risk.
The stable outlook on CLPP's ratings reflects Moody's expectation
that the company will maintain its low-risk business profile,
with predictable cash flow under a stable regulatory environment in Hong
Kong, at least over the next 12 months.
Upward momentum on CLPP's issuer rating is remote in the near term,
given the stable regulatory environment and the company's predictable
financial profile, with a lower regulated return after 2018.
The key metrics that Moody's would consider for an upgrade include
FFO/debt above 35% and debt/capitalization below 30% on
a sustained basis.
Moody's could downgrade CLPP's issuer rating if the company's credit
strength deteriorates substantially because of (1) adverse changes in
the regulatory environment, and (2) a weakening in its operator
profile.
The key metrics that Moody's would consider for a downgrade include
FFO/debt below 20%, and debt/capitalization in excess of
45%, both on a sustained basis.
In addition, a material deterioration in the credit profile of CLPH
could trigger a review of CLPP's issuer rating.
The principal methodology used in this rating was Regulated Electric and
Gas Utilities published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
CLP Power Hong Kong Limited, a wholly owned and principal subsidiary
of CLP Holdings Limited, is a vertically integrated electricity
generation, transmission and distribution company in Hong Kong.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Ivy Poon
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Ning Loh
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077